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April WPI inflation came in at 8.7% yoy, higher than the Bloomberg consensus expectation of 8.4% yoy and in
line with our expectation of 8.6% yoy. On a sequential basis, headline inflation grew 0.2% mom s.a., similar to
March. Importantly, the February headline number was revised up to 9.5% yoy from 8.3% yoy.
High oil and core prices driving inflation. Fuel inflation grew 1.0% mom s.a., from the 1.8% mom increase in
March. The non-food manufactured inflation index, the Reserve Bank of India’s (RBI) measure of core, grew 6.8%
yoy from 8.0% yoy in the previous month. Significantly, the February headline number was revised up significantly
to 9.5% yoy from 8.3% yoy, with the upward revision of the core number to 8.3% yoy from 6.1% yoy driving the
change. This suggests that both headline and core inflation for April will likely be revised significantly upwards.
The April WPI numbers suggest that pressure on headline inflation remains high. Primary article prices are
coming off, but fuel and core inflation will likely keep headline higher. Petrol prices have already been increased
Rs.5/litre with effect from midnight of May 14, 2011. Our analysis suggests that this will have only 0.1 percentage
point impact on inflation, given its low weight in the WPI. However, if diesel prices are raised later this week, then it
would put increased pressure on headline.
The April print and the February revision confirms our view that inflation will remain uncomfortably high
for the RBI through the summer, and be a key headwind for asset markets. We continue to expect an above
consensus 75 bp in rate hikes in the remainder of 2011, with the next hike of 25 bp in the June 16, 2011 meeting.
Our 3, 6, and 12-mnth USD/INR targets remain at 46, 46.2 and 47 respectively
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
April WPI inflation came in at 8.7% yoy, higher than the Bloomberg consensus expectation of 8.4% yoy and in
line with our expectation of 8.6% yoy. On a sequential basis, headline inflation grew 0.2% mom s.a., similar to
March. Importantly, the February headline number was revised up to 9.5% yoy from 8.3% yoy.
High oil and core prices driving inflation. Fuel inflation grew 1.0% mom s.a., from the 1.8% mom increase in
March. The non-food manufactured inflation index, the Reserve Bank of India’s (RBI) measure of core, grew 6.8%
yoy from 8.0% yoy in the previous month. Significantly, the February headline number was revised up significantly
to 9.5% yoy from 8.3% yoy, with the upward revision of the core number to 8.3% yoy from 6.1% yoy driving the
change. This suggests that both headline and core inflation for April will likely be revised significantly upwards.
The April WPI numbers suggest that pressure on headline inflation remains high. Primary article prices are
coming off, but fuel and core inflation will likely keep headline higher. Petrol prices have already been increased
Rs.5/litre with effect from midnight of May 14, 2011. Our analysis suggests that this will have only 0.1 percentage
point impact on inflation, given its low weight in the WPI. However, if diesel prices are raised later this week, then it
would put increased pressure on headline.
The April print and the February revision confirms our view that inflation will remain uncomfortably high
for the RBI through the summer, and be a key headwind for asset markets. We continue to expect an above
consensus 75 bp in rate hikes in the remainder of 2011, with the next hike of 25 bp in the June 16, 2011 meeting.
Our 3, 6, and 12-mnth USD/INR targets remain at 46, 46.2 and 47 respectively
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